Coverage of all major currencies and the US Dollar Index.
The Kiwi respected the band of resistance at $0.80/$0.82 against the greenback, warning of a primary decline. Earlier breach of the rising trendline strengthens the signal. Failure of support at $0.75 would offer a target of $0.70.
* Target calculation: 0.75 – ( 0.80 – 0.75 ) = 0.70
The Aussie Dollar is headed for a test of support at $1.01/$1.00. Recovery above $1.08 would complete an inverted head and shoulders, but there is still some way to go. Breach of support would warn of another primary decline. In the long-term, failure of support at $0.94 would offer a target of $0.80, while breakout above $1.08 would indicate a target of $1.22.
* Target calculation: 0.94 – ( 1.08 – 0.94 ) = 0.80
The Dollar Index is consolidating below resistance at 77.50. Breach of the descending trendline suggests the correction is over and recovery of 63-day Twiggs Momentum above the zero line indicates that the primary trend remains upward. Breakout above 77.50 would offer a medium-term target of 80*.
* Target calculation: 77.50 + ( 77.50 – 75.00 ) = 80.00
The Dollar Index failed to confirm the primary up-trend, breaking support at 76 with a sharp fall in response to news of a resolution to the euro-zone debt crisis. Expect a test of primary support at 73. Breach of the rising trendline on 63-day Twiggs Momentum would confirm.
Expect gold and commodities to rally as a result of the weakening dollar.
The euro is testing resistance at the former support level of $1.40, in the hope that the bailout out-lined today will rescue the euro-zone from its debt crisis. We will probably read fairly disparate views over the next few weeks before the varying viewpoints synthesize into a clear market direction. Reversal below $1.365 would warn of a decline to $.20*, while narrow consolidation below the resistance level would suggest a breakout and advance to the 2011 highs.
* Target calculation: 1.30 – ( 1.40 – 1.30 ) = 1.20
The Pound similarly rallied to $1.60. Respect would re-test primary support at $1.53, while breakout would target $1.67.
* Target calculation: 1.53 – ( 1.60 – 1.53 ) = 1.46
The dollar broke support at ¥76, continuing its long-term (mega) down-trend against the Yen. Target for the breakout is ¥72*.
* Target calculation: 76 – ( 80 – 76 ) = 72
The Aussie benefited from the weaker greenback, recovering above $1.04 to signal an attempt at $1.08*. Penetration of the descending trendline indicates that the down-trend is weakening.
* Target calculation: 1.04 + ( 1.04 – 1.00 ) = 1.08
The Aussie and Loonie both closely follow commodity prices. Respect of the upper trend channel on the CRB Index would warn of another down-swing.
Canda’s Loonie is testing resistance at $1.00 against the greenback. Reversal below $0.975 would warn of another down-swing, while breakout above parity would target $1.02*.
* Target calculation: 1.00 + ( 1.00 – 0.98 ) = 1.02
The Aussie dollar completed a double bottom against its Kiwi counterpart (probably due to lost man-hours after celebrating their Rugby World Cup win). Expect a test of $1.32* followed by retracement to confirm support at $1.28.
* Target calculation: 1.28 + ( 1.28 – 1.24 ) = 1.32
The South Africans went home early (from the RWC) and a descending triangle on the USDZAR warns of downward breakout to test support at $7.20.
* Target calculation: 7.80 – ( 8.40 – 7.80 ) = 7.20
The Dollar Index retraced to test the new support level at 76.00. Respect would confirm the primary up-trend, while failure would signal trend weakness. A trough above zero on 63-day Twiggs Momentum would strengthen the bull signal.
* Target calculation: 80 + ( 80 – 76 ) = 84
Gold broke through $1700/ounce in response to dollar weakness. Expect retracement to test the new support level. Respect would signal a primary advance to 1800*. The long-term (primary) trend remains upward.
* Target calculation: 1700 + ( 1700 – 1600 ) = 1800
The Amex Gold Bugs Index is testing medium-term resistance at 560. Breakout would test the upper border of broadening wedge pattern — around 650 — and support a similar advance for the spot metal.
Brent crude is also stronger, testing its upper trend channel at $110/barrel. Respect would indicate another test of the lower channel — and the ascending long-term trendline — while breakout would signal an advance to $120*.
* Target calculation: 110 + ( 110 – 100 ) = 120
The broader CRB Commodities Index is also headed for its upper trend channel. The ascending primary trendline remains intact but 63-day Twiggs Momentum respect of the zero line (from below) warns of a strong down-trend.
The euro is consolidating above $1.365; failure of support would re-test $1.315, warning of another primary decline. A 63-day Twiggs Momentum peak below the zero line would confirm a strong primary down-trend.
* Target calculation: 1.32 – ( 1.40 – 1.32 ) = 1.24
The pound retraced to test resistance at $1.59/1.60 on the weekly chart. Declining 63-day Twiggs Momentum, below zero, suggests a strong down-trend. Reversal below $1.53 would offer a target of $1.46*.
* Target calculation: 1.53 – ( 1.60 – 1.53 ) = 1.46
Canada’s Loonie resembles the Aussie dollar: reversal below short-term support at $0.975 would test $0.94. Respect of the descending trendline would also warn of a decline to $0.88*.
* Target calculation: 0.94 – ( 1.00 – 0.94 ) = 0.88
The Aussie dollar is testing support at $1.28 against its Kiwi counterpart after completing a double bottom. Respect of support would confirm the target of $1.32*.
* Target calculation: 1.28 + ( 1.28 – 1.24 ) = 1.32
The greenback is ranging in a narrow band above ¥76, supported by the Bank of Japan. 63-Day Twiggs Momentum holding below zero confirms the strong down-trend.
The greenback recovered above R8.00 on the weekly chart against the South African Rand. Expect another test of R8.50. Upward breakout would warn of an accelerating up-trend that is likely to lead to a blow-off.
* Target calculation: 8.50 + ( 8.50 – 7.70 ) = 9.30
Another monthly chart — this time of the Aussie dollar against the greenback. The decline of the last 3 months found support at $0.94 before rallying to a high of $1.04. Breach of the rising trendline indicates that the primary up-trend has ended; confirmed by bearish divergence on 63-day Twiggs Momentum and reversal below zero. Failure of support at $0.94 would signal a decline to $0.84.
* Target calculation: 0.94 – ( 1.04 – 0.94 ) = 0.84
The daily chart shows consolidation between $1.01 and $1.04 over the last week. Failure of support at $1.01 is likely and would warn of a decline to $0.94. Breakout above $1.04 and the descending trendline is unlikely, but would indicate a rally to the July high of $1.10.
When markets are volatile it often pays to take a step back and look at the big picture. A monthly chart shows the Dollar Index ranging between 70 and 90 since 2003, with the 80 level alternating as mid-range support/resistance. The index recently pulled back from resistance at 80 and will now either re-group for another attempt or medium-term support will give way, signaling a test of long-term support.
Zooming in to the daily chart shows narrow consolidation above medium-term support at 76.50. Breakout above 77.60 and the descending trendline would signal another test of 80, while failure of support at 76 would mean a decline to 73.50*.
* Target calculation: 76.5 – ( 79.5 – 76.5 ) = 73.5
In the long term, breach of 73.50 would test 70, while breakout above 80 would signal an advance to 90. If support at 70 fails, gold will rocket through $2000/ounce, but that is only likely to occur if the Fed rolls out QE3.
As a simple exercise to give you some idea of where we’re headed, let’s refer to Rumplestatskin this morning, who shows that iron ore alone represents almost 30% of the export basket that makes up the terms of trade. Coal makes up another large component above 20%:
……So, if we use the conservative Westpac projection of a 16% fall in the value of iron ore and a 5% fall in value of total coal exports (which is obviously a very conservative guess because we don’t know the coking coal weighting), that would translate to a terms of trade fall around 12% in January next year.
via Terms of trade shock brewing? – macrobusiness.com.au | macrobusiness.com.au.
